On 27 March the European Securities and Markets Authority’s (ESMA) temporary intervention measures restricting contract for difference products (CFDs) sold to retail clients were renewed for a further 3 months from 1 May 2019. UK firms are required to comply with ESMA’s measures until they expire in July 2019. See ESMA's website for more information.

December 2018

On 7 December we published a consultation paper on restricting CFD products sold to retail clients. The document proposed permanent rules to restrict how CFDs and CFD-like options are marketed, distributed, and sold to retail consumers. The paper also included a discussion on whether other complex derivative products may pose similar risks of harm when sold to retail consumers and could benefit from similar measures.

ESMA decision notice on temporary restriction on marketing, distribution or sale of contract for differences to retail clients

The measures were published in the Official Journal of the European Union (OJ) on 1 July 2018. They were implemented from 1 August 2018 for CFDs and apply as follows:

1. Leverage limits on the opening of a position by a retail client from 30:1 to 2:1, which vary according to the volatility of the underlying:

30:1 for major currency pairs;

20:1 for non-major currency pairs, gold and major indices;

10:1 for commodities other than gold and non-major equity indices;

5:1 for individual equities and other reference values;

2:1 for cryptocurrencies;

2. A margin close out rule on a per account basis. This will standardise the percentage of margin (at 50% of minimum required margin) at which providers are required to close out one or more
retail client’s open CFDs;

3. Negative balance protection on a per account basis. This will provide an overall guaranteed limit on retail client losses;

4. A restriction on the incentives offered to trade CFDs; and

5. A standardised risk warning, including the percentage of losses on a CFD provider’s retail investor accounts.

Following the conclusion of a project that assessed whether CFD providers and distributors deliver the CFD product to the intended target market, pay due regard to the interests of customers and treat them fairly, we have published a Dear CEO letter for the attention of all CFD firms (PDF) that provide or distribute these financial instruments to retail customers.

Our future focus

There are a number of areas we will be focusing on, including but not limited to: